Stock-market guru Jeremy Siegel, professor of finance at the University of Pennsylvania, admits he has been “far too bullish” on the stock market and expects short-term volatility to linger until oil prices and China's currency stabilize.
"I was far too bullish last December," Siegel admitted, referring to his call on CNBC
that "valuations can stay on the high side."
He also had predicted on CNBC in November that Dow 20,000 was a "real possibility" in 2016. It was above 15,900 on Monday.
To be sure, Wall Street fell sharply in early trading on Monday, continuing a technology-led selloff from Friday, as fears of a worsening global-economic slowdown and dropping oil prices continued to rattle investors.
U.S. crude oil prices fell 2.6 percent after a meeting between Saudi Arabia and Venezuela failed to reassure investors of measures to bolster prices. Demand for crude is considered a barometer for global economic health, and markets across the world have tracked the rise and fall in the price of the commodity this year.
"There is a double threat of deflation, which is very scary for the market," Siegel told CNBC. He pointed to depressed commodities and concerns about how a possible China devaluation of the yuan might impact other economies in Asia. "Can these central banks counteract all these deflationary forces? That's clearly … spooking the markets right now," he said.
"Those deflationary forces ... from China, from commodities are really, in the presence of debt that so many of these energy and other companies ... (are) causing the market turmoil right now," he said.
"The Fed is not meeting its target [on inflation]," Siegel said. The Fed wants to see inflation increase to 2 percent. "I don't see any inflationary forces out there that are worrisome," he added
Always the eternal optimist, Siegel said he does expects markets to stabilize. "In the long-run, you're going to be rewarded [in stocks]," because price-to-earnings ratios are "extremely reasonable" on a historical basis and rates don't look like they're going higher.
"Equities are in a 'go-nowhere-fast' mode, with a downward bias in the near term," Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis, told Reuters.
"We need oil to stabilize to provide some confidence for investors, partly because to a degree, investors' stress is high, earnings visibility is low, and market internals continue to weaken," he said.
Other experts also expect the U.S. market to eventually snap out of its funk.
Newsmax Finance Insider Ed Yardeni doesn’t expect a recession and is optimistic long-term, but he expects 2016 to be “choppy and difficult.”
"I admit the risks of recession are increasing, but I’m not looking for multiples to dive into the single digits, which they do in recessions," he told Barron's.
"I remain fundamentally optimistic. Last year was choppy and difficult; this year will be choppy and difficult. But the U.S. will come out of this in particularly good stead," he said.
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